EXHIBIT
10.1
MANUFACTURING AND DISTRIBUTION AGREEMENT
This Manufacturing and
Distribution Agreement (“ Agreement
”), effective this 1st day of August 2007 (the “
Effective
Date ”), is made by and between Quick Med Technologies,
Inc. , with a registered office at 902 NW 4
th
Street, Gainesville, Florida 32601 (hereinafter “
QMT
”) and BASF Beauty Care
Solutions, L.L.C., a member of the BASF Group, with a
registered office at 50 Health Sciences Drive, Stony Brook,
NY 11790, formerly named Engelhard Long Island, Inc.,
(hereinafter “ BASF
”), each singularly a “ Party
” and collectively the “ Parties
”. Certain capitalized terms set forth
herein are defined in Section 1.
WHEREAS,
QMT owns or controls Patent Rights and Know How to the QMT
Compound and the use thereof, and has the right to grant
licenses to the QMT Compound under such Patent Rights and Know
How;
WHEREAS,
the Parties have entered into the Master Agreement for Product
Development, Manufacturing and Distribution dated August 15,
2002, the Product Development and Distribution Agreement for
Ilomastat dated August 15, 2002, the Tolling Agreement dated
October 20, 2005, as amended, and the Letter of Intent with
the effective date of February 1, 2006, as amended,
(hereinafter the “Prior Agreements”) and desire to
replace and supersede the Prior Agreements with this
Agreement.
WHEREAS,
QMT desires to appoint BASF as a manufacturer and distributor
of the QMT Compound in the Field in the Territory on an
exclusive basis and in connection therewith, agrees to grant,
and BASF desires to obtain, exclusive and non-exclusive
licenses to such Patent Rights and non exclusive right to the
Know How for the QMT Compound in the Field in the Territory on
the terms and conditions of this Agreement.
NOW,
THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and for other good
and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties do hereby agree as
follows:
1.
Definitions
.
The following terms,
whether used in the singular or the plural, shall have the
following meanings for purposes of this
Agreement:
1.1 “
Active
” means any carrier or delivery system containing a
cosmetic ingredient comprising or consisting of the QMT
Compound or an Improvement thereto developed or licensed by
BASF, but shall not include the QMT Compound or any
Improvement thereto.
1.2
“ Affiliate
” means any corporation, firm, partnership or other
entity, which controls, is controlled by or is under common
control with a Party. For purposes of this Section
1.2, “control” means direct or indirect ownership
of more than fifty percent (50%) of the outstanding stock or
other voting rights entitled to elect directors thereof or the
ability to otherwise control the management of the
corporation, firm, partnership or other entity.
1.3
“
Competitive
Products ” means the sale of the QMT Compound for
use in the anti aging cosmetic market in any country by a
third party for a period of two (2) quarters.
1.4 “
Cosmetic(s)
” means a product in which at least one of the product
claims is for moisturization, alleviation of the appearance of
aging (chronological aging or photoaging) or
whitening/depigmentation and said product is regulated as a
cosmetic under the FDCA or would be regulated as a cosmetic
under the FDCA if sold in the United States, and for which no
pre-market approval is required under the FDCA or under any
other similar regulatory scheme in another
country.
1.5 “
Cosmetic Product
Formulation ” means any consumer-ready product
(whether or not it is packaged for consumer use in the Field)
produced by BASF that contains the QMT Compound (or any
Improvements thereto) or an Active, cosmetic excipients(s),
and/or aesthetic modifiers(s).
1.6 “
Compound
Invention ” has the meaning set forth in Section
10.2(b) hereof.
1.7 “
Contract
Year ” means the twelve (12) month period
beginning on January 1, 2008, and each consecutive 12-month
period thereafter during the Term.
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1.8
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“
Disclosing
Party ” has the meaning set forth in Section 8.1
hereof.
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1.9
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“
Distribution
Fee ” means a fee on each sale or other transfer of
Licensed Product; said fee based on the Net Revenues of Licensed
Products as set forth in Section 3 below.
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1.10
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“
FDA ”
means the United States Food and Drug Administration.
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1.11
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“
FDCA ”
means the Food, Drug and Cosmetic Act of the United States and the
regulations and rules promulgated thereunder.
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1.12
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“
Field ”
means the field of Cosmetics sold on an OTC basis
only.
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1.13
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“
First
Contract Year Minimum Sales ” has the meaning set
forth in Section 3.2(a) hereof.
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1.14
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“
Improvements
” means any change, addition, modification, variation,
alteration, enhancement, or improvement to the QMT Compound or to
the inventions described and/or claimed in the Patent Rights or in
the Know How.
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1.15
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“
Indemnitees
” has the meanings set forth in Section 7.1 and 7.2
hereof.
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1.16
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“
Initial
Term ” means January 1, 2008 until midnight of the
last day of the second Contract Year.
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*****
This material has been omitted pursuant to a request for
confidential treatment and filed separately with the
Securities and Exchange Commission.
1.17 “
Know-how
” means the technical and scientific information and
know-how of QMT which relates to manufacturing the QMT
Compound for use in the Field as of the Effective Date, such
as data, results, formula, designs, specifications,
methods, processes, techniques, technical information,
process information, clinical information and any other
information which is owned or controlled (including the
ability to grant a license or sublicense) by QMT as of the
Effective Date.
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1.18
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“
Licensed
Product ” means any of the following: (a) QMT Compound
(or any Improvements thereto) sold or assigned for use in a
Cosmetic prepared by a Third Party or in a Cosmetic Product
Formulation for use in the Field; or (b) an Active sold or assigned
for use in a Cosmetic prepared by a Third Party or in a Cosmetic
Product Formulation for use in the Field.
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1.19
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“
Manufacturing
Costs ” means the direct costs and expenses based on
Direct Material, Direct Labor and Direct Selling Expenses actually
incurred by BASF in manufacturing Licensed
Product(s). Manufacturing Costs shall be calculated in
accordance with United States generally accepted accounting
principles applied on a consistent basis (“ GAAP ”),
adapted as necessary to comply with the provisions set forth
below:
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1.19.1
“ Direct
Material ” means the materials directly used in
the manufacturing process of the Licensed Products, including,
without limitation, packaging, consumables, active substances
and raw materials directly used in manufacturing the Licensed
Product(s). Direct Material shall include the QMT
Compound when the Licensed Product is an Active, but shall not
include QMT Compound when the Licensed Product is the QMT
Compound.
1.19.2
“ Direct
Labor ” means the cost and expense of employees
directly engaged in production activities for the manufacture
of Licensed Products, including without limitation, all
salaries, base pay,
overtime, wages, vacation, illness. holidays, personnel with
pay and shift differential, fringe benefits (such
as health and life insurance), payroll taxes, pension and
profit sharing for workers directly identified with
manufacturing the Product(s).
1.19.3
“ Direct
Selling ” means direct sales commissions (but not
salaries or bonuses) paid to BASF’s sales personnel and
to its independent third party sales agents for generating
sales order(s) for the sale of Product to independent third
parties (exclusive of house accounts).
Without
expanding the foregoing, in no event shall Manufacturing Costs
include any allocation for “Allocated Manufacturing
Overhead”, meaning those indirect manufacturing costs
related to the Licensed Product(s). Allocated
Manufacturing Overhead shall include, without limitation, the
following: maintenance, repairs and supplies for machine
maintenance and repairs; quality assurance; inspection and
quality control, labor costs and supplies; materials handling;
salaries and
wages of personnel; rent depreciation, occupancy charges and
fixed utility charges; depreciation on equipment; and other
manufacturing overhead costs related to each Licensed Product;
insurance; taxes; research and development costs; costs and
fees related to the prosecution and maintenance of
intellectual property; and supplies and chemicals used in the
manufacturing process and that are not assigned to specific
products but are included in manufacturing overhead
costs
1.20 “
Marks
” has the meaning set forth in Section 10.6
hereof.
1.21 “
Net
Revenue ” means the all gross amounts received in
connection with Licensed Products sold or transferred by BASF
or its Affiliates (including, without limitation, all fees,
invoices (based on the gross invoice price), milestones,
royalties, option fees or premiums, and all other amounts
directly or indirectly received by BASF or its Affiliates in
connection with or relating to the sale or transfer of
Licensed Product), after deduction of the following items, to
the extent such items are incurred, taken or borne by the
seller thereof and do not exceed reasonable and customary
amounts in the market in which such sale
occurred: (a) credits actually given or made for
approved return of goods; (b) taxes or government charges,
duties or tariffs (other than an income tax) levied on the
sale, transportation or delivery of a Licensed Product; (c)
third party sales agent’s commissions, if any, directly
attributable to the sale of Licensed Product; and (d) the
direct Manufacturing Costs for the manufacture of the Licensed
Product. If Licensed Product is sold by BASF to an
Affiliate and the sale is made at a discounted price, the
Distribution Fees payable hereunder shall be at the
undiscounted price. In circumstances wherein the
QMT Compound is being sold to an Affiliate for the manufacture
of Licensed Products for sale to unrelated Third Parties, then
QMT shall only receive Distribution Fees on the undiscounted
price to the unrelated Third Party.
1.22 “
OTC
” means over-the-counter retail cosmetic consumer
products that do not require a medical prescription for
purchase and are not subject to regulations as a device,
biologic or drug but is regulated solely as a cosmetic under
the FDCA. For the purpose of sales of products
outside the United States, the definition of “OTC”
shall be deemed to include any product which would be sold as
an over-the-counter retail cosmetic consumer product pursuant
to this definition if such product was sold in the United
States.
1.23 “
Patent
Rights ” means the Patent Rights listed in
Subparts I and II of Exhibit A
hereto.
1.24 “
Proprietary
Information ” has the meaning set forth in
Section 8.1 hereof.
1.25 “
QMT
Compound ” means the matrix metalloproteinase
inhibitor (known under the common law trademark as
“Ilomastat”) as claimed in the Patent
Rights
1.26 “
Recipient
” has the meaning set forth in Section 8.1
hereof.
1.27 “
Second Contract
Year Minimum Sales ” has the meaning set forth in
Section 3.2(b) hereof.
*****
This material has been omitted pursuant to a request for
confidential treatment and filed separately with the
Securities and Exchange Commission.
1.28 “
Term
” shall have the meaning set forth in Section 9.1
hereof.
1.29 “
Territory
” means worldwide.
1.30 “
Third Contract
Year Minimum Sales ” has the meaning set forth in
Section 3.2(c) hereof.
1.31 “
Third
Party ” means any entity other than a Party to
this Agreement or their respective Affiliates.
2.
Appointment
.
2.1
Appointment
. Subject to the terms and conditions of this
Agreement, QMT hereby appoints BASF as the exclusive
manufacturer and distributor of the Licensed Products in the
Field in the Territory. In connection therewith and
solely in support thereof, QMT hereby grants to BASF during
the Term a Distribution Fee bearing exclusive license, and
exclusive sublicense under the Amended and Restated License
Agreement from University of Florida Research Foundation,
Inc., dated as of November 22, 2002, and the License Agreement
from University of Michigan dated as of May 24, 2007 (as
amended from time to time, the “Michigan
License”), to the patents and patent applications listed
in Subpart I of the Patent Rights; a Distribution Fee bearing
non-exclusive license, and non-exclusive sublicense under said
License Agreement from University of Florida Research
Foundation, Inc and said License Agreement from University of
Michigan, to the patents listed in Subpart II of the Patent
Rights; and a non-exclusive license to the Know How, to make,
use, sell, offer for sale and import Licensed Products in the
Territory and to use the QMT Compound solely for research and
development relating to Improvements or new Licensed Products
in the Territory .
2.2
Sublicense
. QMT hereby grants to BASF during the Term the right to grant
sublicenses under the Patent Rights to one or more Affiliates
or to Third Parties solely for the right to manufacture and to
sell the Licensed Product to BASF for the purposes set forth
in this Agreement. Each such sublicense shall be
pursuant to written agreement, a true and correct copy of
which shall be delivered to QMT within thirty (30) days
following its execution. Each such sublicense
agreement shall be consistent with the terms of this Agreement
and shall incorporate such terms as required to provide QMT
with the same protections and rights provided
hereunder. BASF agrees to enforce compliance by the
sublicensee under each such sublicense
agreement. QMT agrees that such delivered
sublicense(s) and the all of the terms and conditions
contained therein is BASF Proprietary Information and shall
treat such Proprietary Information in accordance with Section
8 hereof. QMT also agrees that in certain instances
Proprietary Information of BASF or the sublicense may be
redacted from such delivered sublicenses.
2.3
Know-How
. Under the Prior Agreements, QMT has disclosed
Know-How to BASF solely for purposes of BASF’s research,
development and manufacture of Licensed
Products. BASF agrees that such disclosed Know-How
is QMT’s Proprietary Information and shall treat such
Proprietary Information in accordance with Section 8
hereof.
2.4
No
Other Rights . Except for the express
license and sublicense granted pursuant to Section 2.1
hereof, no license, express or implied, is granted by either
Party to the other Party or its Affiliates under any
intellectual property rights owned or controlled by such
Party or its Affiliates.
2.5
Governmental
Rights; University of Florida and University of
Michigan . All rights and licenses granted
by QMT under this Agreement are subject to (i) any limitations
imposed by the terms of any government grant, government
contract or government cooperative agreement applicable to the
Patent Rights that are the subject of this Agreement, and/or
(ii) applicable requirements of 35 U.S.C. Sections 200
et
seq ., as
amended, and implementing regulations and
policies. Without limitation of the foregoing, BASF
agrees that, to the extent required under 35 U.S.C. Section
204, any Product used, sold, distributed, rented or leased by
the BASF or an Affiliate in the United States will be
manufactured substantially in the United
States. Furthermore, certain of the rights granted
hereunder are subject to a reservation of rights by the
University of Florida and University of Michigan and its
affiliates to use the Patent Rights for its research, public
service, internal (including clinical), and educational
purposes and the rights to grant others similar non-commerical
rights and the licenses granted hereunder are expressly made
subject to such rights and the license from University of
Florida and University of Michigan.
3.
Consideration
.
3.1
Distribution
Fee . In consideration of the rights and
appointments granted to BASF pursuant to Section 2.1 hereof,
commencing on the Effective Date, BASF shall pay to QMT during
the Term a Distribution Fee as set forth in this Section
3. The Distribution Fee shall be due and payable to
QMT on a calendar year quarterly basis as set forth in Section
3.2(d) below. In the event BASF is required to pay
royalties to any Third Party (other than any payments which
may be required to be made to the University of Michigan or
the University of Florida under any of the Patent Rights) in
order to make, use or sell Licensed Products, BASF’s
obligation to pay the Distribution Fee to QMT under this
Section 3.1 shall not be affected. Further, in the
event BASF sells Actives or the QMT Compound to a Third Party
solely for use by BASF to produce a Cosmetic Product
Formulation to be sold to such Third Party, QMT shall be paid
a Distribution Fee on Net Revenues of the Active or QMT
Compound sale, not the sale of the Cosmetic Product
Formulation.
(a)
Distribution
Fees During the First Contract Year . During
the first Contract Year, BASF shall pay QMT a Distribution Fee
equal to: (i) *****
of the Net Revenues received until the total invoiced sales of
Licensed Products for the first Contract Year equals
*****
U.S. dollars (the “First Contract Year Minimum
Sales”); (ii) *****
of the Net Revenues received as of the date the total invoiced
sales of Licensed Products for the first Contract Year is
greater than *****
U.S. dollars but less than *****
U.S. dollars; and (iii) *****
of the Net Revenues received as of the date the total invoiced
sales of Licensed Products for the first Contract Year is
equal to *****
U.S. dollars. In the event the First Contract Year
Minimum Sales are not met, QMT has the option to
convert
this Agreement to a non-exclusive license for all Patent
Rights, or to terminate this Agreement in accordance with
Section 9 below.
(b)
Distribution
Fees During the Second Contract Year
. During the second Contract Year, BASF shall pay
QMT a Distribution Fee equal to: (i) *****
of the Net Revenues received until the total invoiced sales of
Licensed Products for the second Contract Year equals
*****
U.S. dollars (the “Second Contract Year Minimum
Sales”); (ii) *****
of the Net Revenues received as of the date the total invoiced
sales of Licensed Products for the second Contract Year is
greater than *****
U.S. dollars but less than *****
U.S. dollars; and (iii) *****
of the Net Revenues received as of the date the total invoiced
sales of Licensed Products for the second Contract Year is
equal to *****
U.S. dollars. In the event the Second Contract Year
Minimum Sales are not met, QMT has the option to convert this
Agreement to a non-exclusive license for all Patent Rights, or
to terminate this Agreement in accordance with Section 9
below.
(c)
Distribution
Fees During the Third Contract Year.
. During the third Contract Year, BASF shall pay
QMT a Distribution Fee equal to: (i) *****
of the Net Revenues received until the total invoiced sales of
Licensed Products for the third Contract Year equals
*****
U.S. dollars (the “Third Contract Year Minimum
Sales”); (ii) *****
of the Net Revenues received as of the date the total invoiced
sales of Licensed Products for the third Contract Year is
greater than *****
U.S. dollars but less than *****
U.S. dollars; and (iii) *****
of the Net Revenues received as of the date the total invoiced
sales of Licensed Products for the third Contract Year is
equal to *****
U.S. dollars.
(d) Distribution
Fees for each Contract Year shall be due and payable each
quarter at the same time as the Distribution Fee Report is due
to the QMT pursuant to Section 4.2.
3.3 Reduction In Distribution Fees. For sales of
Licensed Products in any country within the Territory for which
there is no granted or pending Patent Right and within which there
exists a Competitive Product, BASF and QMT shall negotiate in good
faith a reduced Distribution Fee for the Net Revenues of the
Licensed Product sold in such country or countries; provided that
such sales are not to an Affiliate of BASF solely for resale to
customers in a country within the Territory where there is an
existing granted or pending Patent Right. The reduced
Distribution Fees shall be retroactive to the date the Competitive
Product, as defined, first existed, and BASF shall be provided a
credit towards future Distribution Fees which is equal in amount to
the difference between Distribution Fees actually paid and the
amount of such reduced Distribution Fees which would have been
due.
*****
This material has been omitted pursuant to a request for
confidential treatment and filed separately with the
Securities and Exchange Commission.
4.
Payments,
Reports and Records .
4.1
New
Licensed Products . BASF shall provide
written notice to QMT of the trademarks and tradenames of all
Licensed Product as of the Effective Date of this Agreement
and thereafter shall provide the trademarks or tradenames of
any new product or product line containing or constituting the
Licensed Product at least thirty (30) days prior to the launch
thereof. QMT agrees that the pending launch of a
new product or product line, and such trademarks
and tradenames is BASF’s Proprietary Information (or the
Proprietary Information of BASF’s customer) and shall
treat such information as Proprietary Information in
accordance with Section 8 hereof until such time as the
trademark/tradename or launch falls within the exception of
Section 8.3(c). In the event that Proprietary
Information submitted to QMT pursuant to this Section 4.1 is
publicly disclosed by QMT prior to the applicability of
Section 8.3(c), whether such disclosure is intentional or not,
the notice requirement of this Section 4.1 shall no longer
apply to BASF.
4.2
Payments
. During the Term, and within thirty (30) days from
the last business day of the quarter to which a report
relates, BASF shall furnish to QMT quarterly written reports
during each Contract Year showing the following: (i) the Net
Revenues of the Licensed Products (broken out by product line)
sold by BASF. and its Affiliates during the reporting period
listed by country, and qualifying deductions, as defined in
Section 1.19 hereof, listed by category of deduction; (ii) the
Distribution Fees payable in United States dollars which shall
have accrued hereunder in respect of such sales; (iii)
withholding taxes, if any, required by law to be deducted in
respect of such sales, as applicable; and (iv) the exchange
rates used in determining the amount of United States dollars,
if applicable. The reports shall be substantially similar to
the form attached hereto as Exhibit B. All Distribution Fee
payments shall be due and payable on the date such report is
due. If no payments are due for any reporting
period hereunder, BASF shall so report. All reports
delivered pursuant to this Section shall constitute the
Proprietary Information of BASF and shall be subject to
Section 8 hereof except that it may be used and disclosed by
the QMT for purposes of enforcing the terms of this
Agreement. All payments to QMT under this Agreement
shall be made in United States dollars by check payable to
“Quick Med Technologies, Inc.” or, if requested by
QMT, by wire transfer to an account designated by
QMT.
4.3
Withholding
Taxes . All Distribution Fee payments are
exclusive of all federal, state, local and foreign taxes,
levies, and assessments, duties, customs and similar
charges. BASF shall be responsible for any and all
such applicable charges incident to the payments to QMT under
this Agreement, other than taxes on QMT’s
income. When QMT has the legal obligation to
collect such taxes, the appropriate amount shall be paid by
BASF (by adding such amount to the payment to QMT under
Section 4.2), unless BASF provides QMT with a valid tax
exemption certificate authorized by the appropriate taxing
authority. In the event that BASF is required by
applicable law to make deductions or withholdings from
payments to QMT hereunder, then BASF shall pay such additional
amounts to QMT as may be necessary to assure that the actual
amount received by QMT after deduction or withholding shall
equal the amount that would have been received if such
deduction or withholding were not required.
4.4
Exchange
Rates . If BASF receives revenues from the
sale of Licensed Products in currency other than United States
dollars, revenues shall be converted to United States dollars
at the conversion rate for foreign currency published by
Deutsche Bundesbank as of the last business day of the
applicable month.
4.5
BASF’s
Recordkeeping and Inspection . BASF shall
keep for at least six (6) years records of all sales of
Licensed Products in sufficient detail to permit QMT to
confirm the accuracy
of BASF’s Distribution Fee payment
calculations. At the request of QMT, or with regard
to the sublicensed Patent Rights at the request of the
University of Michigan or the University of Florida, as the
case may be, no more frequently than once per year, upon at
least five (5) business days prior written notice to BASF and
at the expense of QMT, the University of Michigan or the
University of Florida, as the case may be, (except as
otherwise provided below), BASF shall permit an experienced,
independent certified public accountant selected by QMT, or in
the event such request is pursuant to a request and reasonably
acceptable to BASF to inspect, during regular business hours,
any such BASF records for the then-preceding six (6) years
solely to the extent necessary to verify such calculations;
provided that
such accountant in advance has entered into a confidentiality
agreement with BASF (substantially similar to the
confidentiality provisions of this Agreement) limiting the
disclosure of such information to authorized representatives
of the Parties and further provided that the University of
Michigan or the University of Florida, as the case may be, has
entered into a confidentiality agreement with BASF
(substantially similar to the confidentiality provisions of
this Agreement) limiting the disclosure of such information to
authorized representatives of the University of Michigan or
the University of Florida, as the case may
be.. Results of any such inspection shall be made
available to both Parties. If such inspection
reveals a deficiency in the calculation of Distribution Fees
resulting in an underpayment to QMT by five percent (5%) or
more, BASF shall pay all costs and expenses of such
inspection. If, during any Contract Year during the
Term, an inspection reveals a deficiency in the calculation of
Distribution Fees resulting in an underpayment to QMT by
twenty percent (20%) or more, then BASF shall, at its sole
cost and expense, thereafter supply QMT with annual audits by
a mutually agreeable independent auditing firm for each
remaining Contract Year during the Term within sixty (60) days
following the end of each Contract Year.
4.6
Interest on Late
Payments . Amounts that are not paid by BASF
within thirty (30) days following the date such payments were
due shall accrue interest, from the due date until paid, at a
rate equal to one and one-half percent (1.5%) per month (or
the maximum allowed by law, if less).
5.
Research, and
Development Data; Marketing Review.
5.1
Product
Data . BASF shall be responsible for the
development of all data and other information relating to the
Licensed Products and Product sales, in
